Wednesday, March 5, 2014

How Malaysia’s Minimum Wage Beats America’s

The United States has a less generous minimum wage than Malaysia, Mongolia, and Pakistan, judging by one metric cataloged by Thompson-Reuters’ Breakingviews.

The U.S. minimum wage pays just 28 percent of the country’s per-capita gross domestic product. That means a year of full-time labor at minimum wage would earn an American worker just over one quarter of the average financial prosperity the American economy creates. Of the 31 countries Breakingviews analyzed, just Japan, China, Indonesia, Hong Kong, Russia, and Mexico have less generous wage floors relative to the total prosperity their countries produce.

The minimum wage in Malaysia guarantees a worker will earn at least 31.7 percent of what the Malaysian economy produces per Malaysian. The ratio is over 43 percent in South Korea, 45.5 percent in India, and 60.1 percent in New Zealand, and the average is 42.25 percent for countries where World Bank data makes the calculation possible.

There are a great many complicating factors that make international comparisons based on this metric messy, the authors note. But the dataset indicates that there is a lot of room to raise the wage floor in the most prosperous country on earth. Raising the minimum wage to $10.10 per hour, as President Obama has joined progressive legislators in proposing, would raise the minimum wage-to-GDP per capita ratio “to 39 percent of GDP — still below average,” Breakingviews notes.

The statistic also demonstrates how much room American law leaves for inequality to fester. By allowing people who work 40 hour weeks to earn well below a third of what would be an egalitarian share of the country’s total output, American wage law encourages the sort of vast wealth inequality that is undermining American economic growth and political stability today.

The statistic also reflects the disconnect between economic productivity and individual rewards. While workers have been ramping up their aggregate productivity for decades, their wages have stagnated or even fallen. Today, taxpayers spend a quarter-trillion dollars each year on public benefits for full-time low-wage workers, essentially subsidizing the profits of the companies that fail to pay their workers enough to live independently. Higher wages would raise consumer goods prices by negligible amounts — one cent per DVD, for instance — while boosting overall economic growth by billions and raising millions of Americans out of the chaos and perpetual trauma of living in poverty.

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